Why that condo rental might not work

Vacancy rates in the apartment sector continue to drop and condominium investors are taking advantage of the trend to fill their units. But before you jump on board beware that supply has jumped up in major markets like Toronto, making rental increases difficult to pass on.

Toronto condominium investors might find themselves disappointed in rental rates, according to a new survey.

“Investors have been able to rent out their condominiums units in Toronto — but not necessarily at the rents they were expecting,” says Altus Group, a real estate research firm, in a new report. “The addition of more than 9,000 condominium apartments units to the Toronto rental stock in the past year has kept average rent increases to a minimum.”

The addition of new 9,000 units to the Toronto marketplace compares with 650 the year before and comes as demand in the city has been strong enough to reduce the overall vacancy rate.

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The vacancy rate in Toronto dropped from 1.7% to 1.1%. The surge in supply has kept down average rental rates which climbed to $1,608 per month for a two bedroom apartment, up 0.8% from a year earlier.

Across the country, condominiums are increasingly becoming an important element in the rental stock with not much purpose-built rental stock going up.

The report notes condo units are on the rise in all six markets survey which in addition to Toronto include Edmonton, Calgary, Ottawa, Montreal and Vancouver. In Edmonton and Calgary, condo units are 17% and 24% of the rental stock respectively which compares with 10% and 6% five years ago.